--- title: "Special Series: Potluck's Hotel Stories 06" description: "How hotels choose their operating models—and why it matters" published: 2018-08-05T08:42:18+00:00 author: "ONDA 편집팀" category: "Insights" image: "https://zqcfqfqgiyckyhazcfrk.supabase.co/storage/v1/object/public/blog-images/webflow/6316f3f75130788ec2d762dd/65d6173842c765b93b4463bc_Frame_51.jpg" canonical: https://global.onda.me/en/blog?slug=teugbyeolyeonjae-poteureogi-deulryeojuneun-hotel-iyagi-06 locale: en --- # Special Series: Potluck's Hotel Stories 06 #### **06. Hotel Operating Models** ##### By Potluck ([https://brunch.co.kr/@nicejty0](https://brunch.co.kr/@nicejty0)) The heat shows no sign of letting up. Even though humans are adaptable creatures, we still can't adjust to heat waves and tropical nights. Peak vacation season is here, but tourist destinations are quieter than usual. Instead, people are flocking indoors—department stores, shopping malls—to escape the heat. How has the heat wave affected the hotel industry? Hotels in tourist areas are seeing lower occupancy. Meanwhile, urban hotels are booming—more people are doing "ho-cations" (hotel + vacation) in the city to beat the heat. The hotel business is extremely volatile. Weather matters, yes—but so do politics, economics, international relations, and social trends. On top of that, hotels require massive upfront investment (construction) and high fixed costs (labor). Turning a profit is no small feat. To overcome these challenges and stay profitable, owners need to choose the right operating model for their situation. So today, let's talk about **hotel operating models**. ![3](https://zqcfqfqgiyckyhazcfrk.supabase.co/storage/v1/object/public/blog-images/webflow/6316f3f75130788ec2d762dd/65a407efc5f42eb050129d89_62e76819c2321d54f28afeff_5e942f7606600f4058dc99e6_3.jpeg) #### _A compact room at Ibis, a business hotel._ Let's say you're a hotel developer. You've secured land and capital. The first decision: **what kind of hotel will you build?** ![](https://zqcfqfqgiyckyhazcfrk.supabase.co/storage/v1/object/public/blog-images/webflow/6316f3f75130788ec2d762dd/65a407efc5f42eb050129d91_62e76819c2321dcec28aff01_5e942f77961046d1007f56f2_16.jpeg) If you're building a luxury hotel… ![](https://zqcfqfqgiyckyhazcfrk.supabase.co/storage/v1/object/public/blog-images/webflow/6316f3f75130788ec2d762dd/65a407efc5f42eb050129da1_62e76819c2321d06828aff00_5e942f773338320b4843a758_2.jpeg) …you'd expect facilities like this, right? In other words, you need to decide on the **grade and scale of your hotel.** This comes from market analysis and targeting. Once you understand market size and customer profiles, you determine the hotel's grade (luxury, business, budget, etc.) and scale (typically measured by room count). ### **First: Set the grade. Then match your facilities and interior design to that standard.** If you're going luxury, standard rooms should be at least 8–10 pyeong (roughly 26–33 sqm). You'll need at least three different restaurants. Amenities: gym, indoor pool, spa, meeting rooms, upscale lounge. And of course, high-end interiors in the lobby, rooms, and restaurants. For a business-grade hotel? Rooms can be smaller—6–7 pyeong (20–23 sqm). Minimize amenities. Keep interiors simple and cost-effective. ### **Next: Decide on scale.** This is usually measured by room count—because it determines how many guests you can accommodate, which drives the size of your restaurants, meeting rooms, and other facilities. Once you've nailed down scale and concept, the next question is: **"How will we operate this?"** That is, what's your **operating model?** As I've mentioned before, the hotel business isn't just about hardware (the building). Software—operations and service—is just as critical. That's why the operating model is one of the most important decisions in hotel development. There are four main approaches: ![5.jpg](https://zqcfqfqgiyckyhazcfrk.supabase.co/storage/v1/object/public/blog-images/webflow/6316f3f75130788ec2d762dd/65a407efc5f42eb050129d9d_62e7681ac2321d30f18aff03_5e942f77b499e51e71df50f5_5.jpeg) #### _Management contract model – W Hotel (Source: W Hotel website)_ ### **1. The owner operates the hotel directly. (Independent hotel model)** This works if the owner has operational experience. **Pros:** Full autonomy. No management fees to outside firms. **Cons?** The owner's operational know-how and systems can't compete with global chains like Marriott or Hilton. So the independent model works best when: **1. The hotel is small**, or **2. The owner has decades of expertise, a strong brand, and robust systems**—think Shilla or Lotte. ![4.jpg](https://zqcfqfqgiyckyhazcfrk.supabase.co/storage/v1/object/public/blog-images/webflow/6316f3f75130788ec2d762dd/65a407efc5f42eb050129d94_62e7681ac2321d41cc8aff04_5e942f775f8678293a659122_4.jpeg) #### _Management contract model – Courtyard by Marriott Namdaemun (Source: Courtyard Namdaemun website)_ ### **2. The owner hires a professional operator. (Management contract model)** This is the opposite of the independent model. **The key benefit:** Owners with zero hotel experience can enter the business. You get proven operational expertise and systems from a professional firm—more stability than going solo. **The downside:** Management fees. One important note: the operator is a service provider. **They don't guarantee performance.** If the hotel loses money, that's on the owner. **Examples:** **Courtyard Namdaemun** (owner: KT&G, operator: Marriott), **Walkerhill Hotel and W Hotel** (owner: SK Networks, operator: Starwood). The operators are the companies behind the global brands—more on hotel brands in the next piece. ### **3. The owner operates, but licenses a brand and system from a hotel company. (Franchise model)** This is for owners who know how to run a hotel but lack a trusted brand. Brand matters—a lot. Especially for hotels targeting international travelers. A global brand gives you access to the parent company's reservation system (for a fee), loyalty programs, and marketing reach. All of which help drive bookings. **But:** If the owner lacks operational chops, success is unlikely. And while franchise fees are lower than full management fees, they're still a cost. **Examples:** **Alpensia InterContinental** and **Holiday Inn**. The **InterContinental Seoul COEX** (operated by Parnas, a GS E&C subsidiary, under the IHG brand) was also a franchise model. ![6.jpg](https://zqcfqfqgiyckyhazcfrk.supabase.co/storage/v1/object/public/blog-images/webflow/6316f3f75130788ec2d762dd/65a407efc5f42eb050129d85_62e7681ac2321d7dea8aff02_5e942f7836c30b0cdfe8e490_6.jpeg) #### _Referral model – Best Western Hotel_ ### **4. Independent hotels band together, create a shared brand and system, and pool resources. (Referral/consortium model)** Think of this as a workaround for independent hotels' limitations—weak brand recognition and limited systems. Owners form a consortium, build a brand and infrastructure together, and share it. It's a hybrid of independent and franchise models. By joining the consortium, an independent owner gets access to the group's brand and systems. This model originated in the U.S. **Best Western** is the classic example. --- That wraps up hotel operating models. Stay cool in the heat, and see you in September. #### **\[Series Index\]** [March 2018: Origins and History of Hotels](https://onda.me/magazine/15/post/1018) [April 2018: Evolution of Korea's Lodging Industry](https://onda.me/magazine/16/post/1107) [May 2018: Characteristics of the Hotel Industry](https://onda.me/magazine/17/post/1197) [June 2018: Hotel Terminology Cheat Sheet](https://onda.me/magazine/18/post/1334) [July 2018: Key Functions and Facilities of a Hotel](https://onda.me/magazine/19/post/1395) **August 2018: Hotel Operating Models** September 2018: Hotel Brands October 2018: Lodging Development/Operations Success Stories (1) November 2018: Lodging Development/Operations Success Stories (2) December 2018: Lodging Development/Operations Success Stories (3) January 2019: Lodging Development/Operations Success Stories (4) ## [View the full magazine >>](http://bit.ly/magazineon20)